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Consumer Allocation Models: Choice of Functional Form


  • Barten, Anton P


The functional form of consumer allocation models should be able to satisfy theoretical properties derived from the theory of consumer demand. The paper sketches four approaches that meet this condition. Of course, also empirical performance matters. Next to naive goodness-of-fit comparison, non-nested hypothesis testing can be employed. The latter technique is applied to a comparison of four versions of differential demand systems: the Rotterdam system, a version of the Almost Ideal Demand (AID) System, the CBS system, and the NBR system. These systems are artificially nested in a more general model using scalar weights in contrast to Barten and McAleer (1991) who use matrix weights for this purpose. Annual data over the period 1921-81 of the Netherlands for four major groups of consumer expenditure have been used for the empirical application. The CBS system dominates the others.

Suggested Citation

  • Barten, Anton P, 1993. "Consumer Allocation Models: Choice of Functional Form," Empirical Economics, Springer, vol. 18(1), pages 129-158.
  • Handle: RePEc:spr:empeco:v:18:y:1993:i:1:p:129-58

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    References listed on IDEAS

    1. Engel, Charles, 2000. "Long-run PPP may not hold after all," Journal of International Economics, Elsevier, vol. 51(2), pages 243-273, August.
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    7. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
    8. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
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